An economic perspective on the ‘reciprocal tariffs’

Journal of International Economic Law · 2026-03-26

Abstract This article considers the economic foundation for the Trump administration’s 2025 Executive Order imposing ‘reciprocal tariffs’ under the International Emergency Economic Powers Act (IEEPA). The analysis in the Executive Order rests on numerous historical and economic fallacies, some rather subtle. They undermine each step in the logic of the Executive Order. An understanding of the errors in its logic exposes important flaws in contemporary discourse about US trade and thus has implications that extend well beyond the dispute over the President’s powers under IEEPA. We also address and critique the use of Section 122 of the 1974 Trade Act as a substitute for the IEEPA tariffs.

Applications of Game Theory in the Political Economy of Trade Policy

Cambridge University Press eBooks · 2026-01-31

International Discipline of Government Subsidies: An Assessment of Current Rules and Possible Reforms

SSRN Electronic Journal · 2025-01-01

Optimal Tariffs with Geopolitical Alignment

SSRN Electronic Journal · 2025-01-01

An Economic Perspective on the “Reciprocal Tariffs”

SSRN Electronic Journal · 2025-01-01

Industrial Policy and Subsidies: Assessment of Current Rules and Possible Reforms

Journal of World Trade · 2025-06-23 · 2 citations

Industrial subsidies have proliferated in recent years, and existing international rules respecting subsidies are increasingly viewed as inadequate. This paper surveys the rationale for subsidization, the international externalities that may result, and the possible mechanisms for policing those externalities. It then reviews existing legal rules and considers a range of proposals for reform. Among other things, it suggests that sector specific rules are preferable to generally applicable rules for sectors in which subsidization is especially problematic. We also favour the creation of new ‘safe harbor’ provisions insulating certain types of subsidies from challenge, and changes to remedial principles to make sanctions for problematic subsidies more effective. Finally, we address the vexing problem of designing rules for non-market economies (NME) and stateowned enterprises.

Optimal Tariffs with Geopolitical Alignment

National Bureau of Economic Research · 2025-08-01 · 6 citations

As geopolitical tensions intensify, great powers often turn to trade policy to influence international alignment.We examine the optimal design of tariffs in a world where large countries care not only about economic welfare but also about the political allegiance of smaller states.We consider both a unipolar setting, where a single hegemon uses preferential trade agreements to attract partners, and a bipolar world, where two great powers compete for influence.In both scenarios, we derive optimal tariffs that balance terms-of-trade considerations with strategic incentives to encourage political alignment.We find that when geopolitical concerns are active, the optimal tariff exceeds the classic Mill-Bickerdike level.In a bipolar world, optimal tariffs reflect both economic and political rivalry, and may be strategic complements or substitutes.A calibration exercise using U.N. voting patterns, an estimate of the cost of buying votes in the U.N., and military spending suggests that geopolitical motives can significantly amplify protectionist pressures and that the emergence of a second great power can contribute to a retreat from globalization.

When Tariffs Disrupt Global Supply Chains

American Economic Review · 2024-03-28 · 123 citations

We study unanticipated tariffs in a setting with firm-to-firm supply relationships. Firms conduct costly searches and negotiate with potential suppliers that pass a reservation level of match productivity. Global supply chains form in anticipation of free trade. Then, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or search for replacements. Calibrating the model’s parameters to match initial import shares and the estimated responses to the US tariffs imposed on China, we find an overall welfare loss of 0.12 percent of GDP, with substantial contributions from changes in input sourcing and search costs. (JEL D72, F13, F14, L14, O19, P33)

Optimal Resilience in Multitier Supply Chains

The Quarterly Journal of Economics · 2024-08-10 · 15 citations

Abstract Forward-looking investments determine the resilience of firms’ supply chains. Such investments confer externalities on other firms in the production network. We compare the equilibrium and optimal allocations in a general equilibrium model with an arbitrary number of vertical production tiers. Our model features endogenous investments in protective capabilities, endogenous formation of supply links, and sequential bargaining over quantities and payments between firms in successive tiers. We derive policies that implement the first-best allocation, allowing for subsidies to input purchases, network formation, and investments in protective capabilities. The first-best policies depend only on production function parameters of the pertinent tier. When subsidies to transactions are infeasible, the second-best subsidies for resilience depend on production function parameters throughout the network, and subsidies are larger upstream than downstream whenever the bargaining weights of buyers are nonincreasing along the chain.

Supply Chain Resilience: Should Policy Promote International Diversification or Reshoring?

Journal of Political Economy · 2023-03-29 · 106 citations

Little is known about optimal policy in the face of global supply chain disruptions. Should governments promote resilience by subsidizing backup sources of input supply in multiple countries? Should they encourage firms to source from safer domestic suppliers? We address these questions in a model of production with a critical input and exogenous risks of supply disturbances. With constant elasticity of substitution preferences, a subsidy for diversification achieves the constrained social optimum. When the demand elasticity rises with price, private investments in resilience may be socially excessive and the social planner may wish to discourage diversification while favoring sourcing from abroad.